If the stock market’s response is any indication, E.ON has the right idea. Shares are selling at a two-year high. A little over two weeks ago, the price was €12.948; yesterday’s closing sale was €15.09. On November 30, Germany’s largest utility announced that it would split into two parts. A new company will be formed to take over conventional energy sources, allowing E.ON to focus on the new energy world.
At the press conference in which this decision was announced, E.ON CEO Dr. Johannes Teyssen said:
Until not too long ago, the structure of the energy business was relatively straightforward and linear. The value chain extended from the drill hole, gas field, and power station to transmission lines, the wholesale market, and end- customers. The entire business was understood and managed from the perspective of big production facilities. This is the conventional energy world familiar to all of us. It consists of big assets, integrated systems, bulk trading, and large sales volume. Its technologies are mature and proven. This world still exists and will remain indispensable.
In the last few years, however, a new world has grown up alongside it, a world characterized above all by technological innovation and individualized customer expectations. The increasing technological maturity and cost-efficiency and thus the growth of renewables constitute a key driver of this trend. More money is invested in renewables than in any other generation technology. Far from diminishing, this trend will actually increase.
As it became “increasingly difficult to grow in both worlds,” E.ON decided to split into two companies.
The new company will take over E.ON Generation’s thermal and hydro fleet, E.ON Global Commodities’ trading business, E.ON Exploration & Production, and E.ON Russia’s power generation business. It will have Europe’s fourth-largest natural gas portfolio and be the leading operator of technologically advanced gas-fired power plants.
“The New Company’s strong positions in the power and gas business will enable it to play a key role in ensuring supply security in the United Kingdom, Germany, Sweden, Russia, and many other countries,” said Teyssen.
“Because the New Company’s businesses do not yet constitute a corporation, this year and next year we’ll lay the legal foundation for them to be combined. This will involve bringing together under a new parent company those business units that will belong to the New Company. We will then spin off the New Company by transferring a majority of its capital stock to our shareholders. Pending approval by the E.ON Shareholders Meetings in 2016, we expect to carry out the spinoff,” said CFO Klaus Schäfer.
In view of the complexities of this transition, shareholders will be paid “a fixed dividend of €0.50 per share for both the 2014 and 2015 financial years.”
All of E.ON’s existing employees will retain their jobs: 40,000 will remain with the parent company and 20,000 go into the new.
E.ON is also streamlining its operations. It sold all of its holdings in Spain and Portugal to an Australian firm for an enterprise value of €2.5 billion and is contemplating a similar sale in Italy. Enbridge recently acquired an 80% interest in two of E.ON’s windfarms in the US, but the German utility still owns 2,700 MW of capacity in the US.
Thanks to some innovative partnerships, products, and services, for the first time in years, E.ON enlarged its customer base within Germany during 2014. Teyssen expects this to continue.
“The costs of some renewables technologies—such as onshore wind farms—have sunk to parity with, or below, those of conventional generation technologies. We expect that other renewables technologies could become economic in the foreseeable future,” he said.
As energy storage devices become more prevalent, even more people are likely to adopt rooftop solar.
Opportunities for innovative data-based products and services will only grow.
“This new world, which is emerging around customers and their changing needs, is fundamentally different from the conventional energy supply system which is based on large-scale systems. The decisive success factor in the new energy world is customer proximity. Small distributed equipment such as solar panels, micro CHP units, and battery storage devices are just as much a part of this world as increasing interconnectivity,” said Teyssen.
“What we can perceive of this world today is, obviously, just the beginning. The new energy world is still in its infancy. But we believe it will grow faster than the conventional energy world. We also believe not only that both worlds will remain viable for a long time to come but that they need each other. That’s why, despite their fundamental differences, both have their own development and growth opportunities.”
Notes on images, in descending order:
- Dr. Johannes Teyssen – Courtesy Christian Schlüter/E.ON
- Two Leading companies for two energy worlds – Courtesy E.ON press kit
- Transaction Timeline – Courtesy E.ON press kit
- Press Conference on new strategy – Courtesy Christian Schlüter/E.ON
- Rødsand II Wind Park – Courtesy E.ON
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